Earnings from the transports could offer insight into two different corners of the economic rebound.
On the consumer side, reports from Southwest, Alaska Air, Spirit and American Airlines will give color on travel demand, while railroad companies CSX and Union Pacific will give an update on cargo loads and the manufacturing space.
United Airlines, reporting Monday after the bell, posted a fifth quarterly loss in a row and missed analysts’ revenue estimates. The company did offer a more positive outlook, saying it was “encouraged by the strong evidence of pent-up demand for air travel.”
Nancy Tengler, chief investment officer at Laffer Tengler Investments, has her eye on another airline reporting earnings this week.
“If you look at a stock like Southwest Airlines, which reports on Thursday, they have much more of the leisure space, much more domestic exposure,” Tengler told CNBC’s “Trading Nation” on Monday. “Our work looking at relative price-to-sales ratio shows that this stock is only halfway through its recovery.”
The company is expected to report a net loss of $1.85 a share for its March-ended quarter, according to FactSet estimates, a deeper loss than 15 cents a share a year earlier. Its full-year outlook looks sunnier – it is expected to report $1.98 a share in 2021 losses, narrower than $6.22 in 2020.
Tengler says the airline should also weather rising energy expenses well, noting its management team has a “very strong history in hedging oil costs.”
“While we’re worried about the rising cost of oil, their hedging program kicks in at about $65 a barrel, and then more at $80, and they start making some money on the hedge,” said Tengler. “This is where you want to remain if you’re in the stock, and if it sells off on earnings you want to step in.”
West Texas Intermediate crude was trading at $64 a barrel on Tuesday.
Ari Wald, head of technical analysis at Oppenheimer, is optimistic on the entire transports group. He sees more upside based on a bullish outlook for the cyclicals space. He points to a chart tracking the three-year rate-of-change for the Dow Transports.
“[It is] curling up from its most oversold condition in a decade. Now it’s run up to a reading of about 40% but we can see over the last 40 years, it’s topped out closer to 100% … making the case that this is early to mid-cycle bull market, more upside for the transports,” Wald said during the same interview.
Wald says CSX is a good example of a transports stock setting up for more gains.
“[It] broke out in the fourth quarter, it was part of that big breakout in the cyclical areas of the market. It’s fluctuated since then, more recently moving back above its January peak. We think that is marking a resumption of the larger breakout at hand,” he said.
CSX, which reports after the closing bell Tuesday, is 1% off its record high set last week. It has risen nearly 60% in the past 12 months.
Disclosure: Laffer Tengler Investments holds LUV.